State Exchange Finance Company (SEFCO) Jul-Sep 1984

1984 - Jul 3 - Plan on SEFCO wins big in creditor vote

By MATT GALBRAITH Tribune Plymouth Bureau

CULVER Creditors approved the proposed plan of reorganization of State Exchange Finance Co. by a margin greater than 9-to-l, according to figures released today by SEFCO.

Final results of the voting, which ended at noon Monday, showed that 859 of the 1,300 creditors voted, and of that number 828 accepted the plan and 30 rejected it

The amount of the nearly $27.7 million in claims in favor of the plan was $28 9 million. The amount of claims in the number of rejections was about $1.5 million.

Those figures were announced by SEFCO's attorney Thomas F. Lewis Jr. as a hearing to confirm the creditor vote began today in bankruptcy court. The hearing is required before the proposed plan is sent for final consummation of the Federal Deposit Insurance Corp.

The FDIC will look not only at the number of creditors who voted to accept the plan, but will be interested in the amount of claims represented by creditors who refused to sign a form releasing former SEFCO management of further liability.

The amount of non-releases was not made public today.

However, it is believed to be slightly higher than the $1.5 million represented by creditors who rejected the plan. It Ls believed the FDIC will give its approval if the amount of nonreleases is less than $3 million. - South Bend Tribune

1984 - Jul 5 - SEFCO plan confirmed by federal judge

By MATT GALBRAITH Tribune Plymouth Bureau

Plymouth - A federal judge has followed creditors in confirming the 86 percent return creditor payment proposal by the State Exchange Finance Co. in U. S. Bankruptcy court

Creditors were in favor of the reorganization plan by more than 9-1 voting ended Monday

On Tuesday, U S District Judge Robert A Grant, after a two hour hearing instructed SEFCO attorneys to prepare a confirmation order for his signature. The twice passed plan now will bo considered bv the Federal Deposit Insurance Corp.

"It is clear that the creditors have overwhelmingly accepted the plan I believe the court also should approve it". said Grant, who assumed jurisdiction from U S Bankruptcy Judge Robert K Rodibaugh due to the expiration of the bankruptcy law

Rodibaugh served as a consult to Judge Grant Creditor and court approval of the plan, in which SEFCO assets will be liquidated and the finance company closed, came 18 months after papers seeking creditor protection under Chapter 11 of the bankruptcy code were filed Dec 30, 1982 SEFCO attorneys have said that if the FDIC consummates the plan, creditors will be paid in cash a sum equal to about 40 percent of their claims by the end of 1984 Creditors already were paid 10 percent of claims in a court approved interim distribution, which was completed earlier this year

In Tuesday's hearing, SEFCO called as an expert witness Douglas V Austin of Toledo, Ohio. Austin is a professor of finance at Toledo University, owner of a financial consulting firm and a recognized authority on various banking matters.

Based on his review of the plan and financial reports, Austin testified that the plan is "fair, equitable and certainly feasible" and described it as the "best alternative available" to creditors

"I believe that this is one of the better settlements I've seen," he contended

David Rosenthal, a Lafayette, Ind., attorney who represented major shareholders, was relieved of those duties by court order but was allowed to argue against the plan

Rosenthal said the $5 5 million in cash and stock offered by directors and officers of State Exchange Bank of Culver for SEFCO owned Farmers State Bank of LaPaz, as part of the bank's bailout assistance, may reduce in value before reaching creditors

Asked for another alternative by Grant, he said

I would retain the Farmers State Bank, I would retain (SEFCO owned State Exchange) Insurance Agency (being sold to the bank), I would bring in new management, I would bring a (bankruptcy) trustee"

Rosenthal also said pre-bankruptcy insider dealings would be scrutinized, and where negligence and breach of fiduciary duty was discovered, lawsuits would be filed against former management level personnel

SEFCO attorney Salvatore Barbatano of Chicago countered that the finance company "met the confirmation standards" in Chapter 11 - South Bend Tribune

1984 - Jul 9 - SEFCO records due Wednesday

PLYMOUTH Records subpoenaed . by Special Prosecutor Craig Braje in connection with an investigation of the State Exchange finance Co. are scheduled to be delivered to him Wednesday at the Marshall County Courthouse, but there will be no meeting of the grand jury.

Although Braje announced earlier that the jury would meet in July, the jury will not be meeting until later in the year and no definite date has been set.

Braje was named special prosecutor by Judge Michael D. Cook after Prosecutor Fred Jones asked Cook to determine if a special prosecutor should be appointed and mentioned dealings his firm has had with the finance company.

On Dec. 30, 1982, the firm filed petition in federal bankruptcy court under Chapter 11 of the bankruptcy code.

In a letter written last month an attorney for the firm, in which he criticized statements made by the attorney, Jones said one of the things his office was investigating was whether officials of the firm violated state law by receiving deposits when they knew the firm was insolvent.- South Bend Tribune

1984 - Jul 19 - Creditors met to "solidify" SEFCO suit

By MATT GALBRAITH Tribune Plymouth Bureau

PLYMOUTH A group of disgruntled creditors of State Exchange Finance Co. met until late Wednesday night to "solidify" plans for a class-action lawsuit against former SEFCO management, a creditor said as he left the cloned meeting

It was at least the second meeting of approximately two dozen creditors who have discussed a possible suit against the directors and officers who operated SEFCO and the State Exchange Bank of Culver.

Among those who spoke to the group were Plymouth attorneys Eugene N. Chipman and his son, E. Nelson. The Chipman's have Indicated they have potential clients w ho may pursue a lawsuit to regain last Investments and Interest from SEFCOs bankruptcy.

Earlier In the day, Donald Slyh, a creditor and former bank auditor, said, "It's not a question of if (there will be a suit), but when." Slyh said plans should be ready to go by July 26.

Not all creditors were as enthusiastic. Schylor McCartney of LaPaz said after the meeting that the group Is not unified and has set forth no set plans.

"They've been rambling along on this about as long as the bankruptcy", said McCartney.

Others In attendance were William Thorne, an Elkhart attorney representing the Creditors Committee and a proponent of the plan of reorganization that creditors who voted overwhelmingly approved earlier this month, and Merle Weber, a creditor-hired representative.

It was learned that Weber, who has done extensive research of SEFCO pre-bankruptcy dealings for creditors, was to present Information on large cash withdrawals from SEFCO by insiders in the year before SEFCO filed lor Chapter 11 protection Dec. 30, 1982.

This information was apparently gathered to support the accusation of former SEFCO-bank officer Robert Cultice that those who controlled both financial institutions made a "sacrificial lamb" of SEFCO to save the bank from collapse.

Cultice made this claim in a public creditors meeting shortly before voting on the reorganization plan which ended July 1 Meanwhile, SEFCO officials have been busy trying to get more creditors to release former management from liability.

The Federal Deposit Insurance Corp., which still must approve the plan, has stated "almost all creditors" must agree to release management before it approves, according to a letter sent to creditors.

The letter also states that if a sufficient number of releases are not obtained, "It is unlikely that SEFCO will be able to make significant cash distributions to its creditors in the foreseeable future. It has been made clear that If the FDIC rejects the plan, the State Exchange Bank Is certain to close.

Critics of the plan have termed the SEFCO letter a veiled threat against creditors - South Bend Tribune

1984 - Jul 22 - Pledge asked SEFCO creditors SEFCO proposal awaits no-suit vows

By DEBORAH PINES Star Staff Reporter

Culver, Ind. - If Schylor E. McCartney's scowls are any indication, a plan to reorganize a bankrupt northern Indiana financial institution faces real trouble this week.

McCartney and other creditors of the State Exchange Finance Co. (SEFCO) of Culver met near here recently to discuss the plan.

The retired farmer and grocery store owner crossed his legs and cocked his head to the side as an attorney urged practicality.

"YOU'VE GOT to get off your white horse and put down your lance. It's a matter of practicality," the attorney said.

But McCartney and the other of creditors proposal awaits farmers, businessmen and retirees were wary.

They have had those feelings since SEFCO collapsed 1 1/2 years ago, leaving their shares of $26 million in unsecured investment notes in limbo.

This week, their wariness could kill a court-approved plan to reorganize SEFCO and recoup some of their money, perhaps as much as 86 percent of it

THE PLAN depends on enough creditors signing pledges by Thursday that they will not sue SEFCO officials for anything the officials may have done to cause the collapse.

McCartney, for one, is not signing. He believes if there were wrongdoers, they should be held accountable.

Reviews of SEFCO by regulators and the Federal Bankruptcy Court in South Bend have revealed some unusual, if not improper, practices. Among them are:
* Dozens of "insider" loans to SEFCO officers, directors, shareholders and their relatives, including loans SEFCO officials used in private business.
* Representations, through bookkeeping procedures and word-of mouth, that SEFCO was better off than it was.
*Withdrawals by SEFCO "insiders" which reached about $2.4 million in the year before filing for bankruptcy protection.
* An apparent misapplication of bank assets as part of the acquisition of a 2.600-acre Washington State seed ranch.


Advocates of the reorganization plan say it is the best practical hope for SEFCO's 791 creditors who hold 1,300 investment notes. They say any wrongdoing can be punished through criminal prosecution.

BUT McCARTNEY doesn't llke-that kind of practicality.

He is among claimants who have not signed release forms. Their claims total about $3 million of the 26 million. "I didn't think I'd live to be 74 years old and see the United States of America allow blackmail. And that's what it is," McCartney told the creditors over a noisy air conditioner in the LK Motel conference room in Plymouth.

He seemed to gain strength as he spoke. After flashing an impish look at his wife. Vera, he went on.

"EVERYONE'S TRYING to dump their responsibility. I think there was a lot of people enjoying life, having a helluva good time at our expense and I don't like it one bit"

McCartney bought a $3,354.88 investment note from SEFCO in May 1982.

It promised 12 percent interest.

Like many of the investors, he had banked with SEFCO's sister company the State Exchange Bank, all his life. He considered the bank and SEFCO to be nearly one and the same.

In many ways they were. They shared offices in this Marshall County community of 1.600 about 30 miles southwest of South Bend. They had the same employees, directors, stockholders and many of the same officers.

FORMED IN 1923, SEFCO offered bank customers higher risk loans with higher interest But its freedom from banking regulations explains its rise and fall.

SEFCO's capital base grew quickly after it began selling high-interest investment notes. In 1943, it became Indiana's first bank holding company when it bought the stock of Farmers State Bank of LaPaz. It also owned insurance, real estate and brokerage interests.

Loans remained its primary business and became concentrated in few hands: agricultural borrowers, many who exceeded Exchange Bank loan limits, and many SEFCO insiders.

INSIDER LOANS, reported to be $583,693 in 1977 reached $17 million in 1982, according to SEFCO records.

SEFCO's equity base began to erode after 1979 with hard economic times. But by writing off few delinquent loans, its books didn't look so bad.



At the same time, the situation worsened as the State Exchange Bank transferred some bad loans to SEFCO to enhance its own financial picture, officers said.

In early 1982, rumors of SEFCO's troubles caused something of a "run" on the institution. Insiders withdrew $2.4 million in the year before the bankruptcy filing. It is unclear if they knew the end was near.

CREDITORS, ASSURED all along that things were fine, didn't get the bad news until that winter.

SEFCO filed for Chapter 11 bankruptcy protection on Dec. 30, 1981 Ten days later Fred E. Adams, chairman of the board and chief executive officer of SEFCO and the bank, killed himself.

It was then that some creditors learned their investment notes some life savings, some investments - - were not secured by the Federal Deposit Insurance Co. Only bank deposits were.

The bankruptcy filing began a long process of trying to devise the best way to satisfy creditors' claims.

THE PLAN, agreed upon by the court and most creditors earlier this month, basically has four components.
* First, the Farmers State Bank in LaPaz and the State Exchange Bank in Culver would be merged into a new entity called the NorCen Bank.
* Second, certain SEFCO assets its insurance operations, some real estate and some loans would be sold to the State Exchange Bank.
* Third, the new bank stock would be sold, some of it to SEFCO officers and directors. And,
* fourth, those officers and directors, in return, would be promised freedom may have done to cause SEFCO's collapse.


FROM THE reorganization, SEFCO creditors have been promised preferred stock of the new bank (with a book value of $15 million) and $750,000 in cash.

Advocates say the plan could yield as much as an 86 percent payback for creditors. The percentage depends on the amount received from selling new bank stock and SEFCO real estate as well as on the expense of future litigation.

Many are satisfied.

"While there are many aspects of this whole tragic event that are unjust and offensive, maybe the time has come as much as I dislike to compromise principle to try to expedite settlement and go with the plan," said Dr. H. B. Liebengood of Silver Lake, a member of the creditors committee.

THERE ARE many creditors, especially some of the older ones, who are desperately in need of funds and cant afford the luxury of time for more delay, wrangling, and legal expenses," Laebengood said.

As the deadline for signing pledges approaches, SEFCO officials have been explaining and re-explaining the plan to the less satisfied.

In one SEFCO handout dated July 11, officials tried to settle doubts in a question-answer format "Why does FDIC and other agencies require signed releases?" the flier asked.

IT ANSWERED: To bring an end to costly litigation and fees of attorneys, accountants, etc, so that the merged bank will not have this drain of money and management time, and will have a reasonable chance of being financially viable."

But suspicions have remained among the suspicious.

Some consider the SEFCO information campaign to be harassment Some say the State Exchange Bank has implied that loans will not be renewed for holdout creditors.

Bank and SEFCO officials deny these allegations.

"We want people to make an informed decision. We're not pressuring. We would not open ourselves up to that" said D. Joe Clarkson; vice president of the State Exchange Bank.

Clarkson said it is unclear how many holdouts would spoil the plan. He said the FDIC has only said a "large" contingent liability would kill approval. He called the plan the most practical. - Indianapolis Star

1984 - Jul 22 - SEFCO creditors skeptical of regulators' determination

By DEBORAH PINES Star Staff Reporter

Culver, Ind. If wrongdoing helped bankrupt the State Exchange Finance Co. (SEFCO) in Culver, will anyone pay for it?

That is something 791 creditors of the closed northern Indiana financial institution are considering this week.

They have been told that a plan for SEFCO's reorganization requires their pledges by Thursday that they will not sue SEFCO officials for anything the officials may have done to cause the collapse Dec. 30, 1982.

Those who support the reorganization plan maintain that wrongdoers will pay through criminal prosecution. They don't want civil litigation costs to take any more from the assets remaining in SEFCO.

But skeptics look at the record of SEFCO's regulators and wonder. Below is a list of the enforcers, what they knew, when they first knew it and their plans.


* Special Prosecutor Craig V. Braje.

Braje, a LaPorte County deputy prosecutor, is the newest regulator on the scene. Since he was appointed in March, he said he has interviewed witnesses and collected SEFCO records. Braje said he expects to convene a grand jury in September. He wants to organize the material from the complicated investigation before then because the grand jury can only be impaneled for six months.

*The Indiana Department of Financial Institutions and the Federal Deposit Insurance Co.

Both agencies regulate banks, not I bank holding companies like SEFCO. But records indicate their examiners were aware of problems in SEFCO's sister company, the State Exchange Bank in Culver, since at least 1980.

In December 1981, the two agencies entered into an understanding with the bank. They sought pledges that the bank, among other things, would intensify efforts to raise capital, minimize loan delinquencies and write off hopeless loans.

Examiners called the bank's condition "overall less than satisfactory."

A Department of Financial Institutions spokesman could not be reached for comment. Sherwin R. Koopmans, FDIC assistant regional director, said the Culver bank is examined routinely like other similar institutions.

* The Federal Reserve Bank of Chicago.

The Federal Reserve regulates bank holding companies. In 1977, it criticized SEFCO for its concentration of loans in few hands, its large number of insider loans, its little diversity and its growing debt-to-asset ratio.

In 1982, the Federal Reserve cited 22 problems at SEFCO. Among them was transferring loans between SEFCO and State Exchange without prior Federal Reserve Board approval.

A Federal Reserve spokesman would only say examination and follow-up at SEFCO was done on an as-needed basis.

* SEFCO directors. -

Fourteen of 15 directors of the finance company signed the understanding reached with the Department of Financial Institutions and the FDIC in 1981.

At the time, examiners advised the directors to provide "more diligent supervision."

* The FBI questioned SEFCO directors and employees as early as 1982.

FBI spokesman Gordon W. Gwinn would neither confirm nor deny the investigation.

- Indianapolis Star

1984 - Jul 23 SEFCO Creditors Survives Culture Shock Facing Deadline

Culver , Ind. (UPI) - Creditors of a bankrupt bank holding company are facing a Thursday deadline by which to accept a court reorganization. But many of the 791 creditors are skeptical of the proposal for restructuring of the State Exchange Finance Co. of Culver and feel they are being pressured to accept it.

Supporters of the plan say it could recoup 86 percent of their investment.

Those terms include prohibitions against the creditors from filing lawsuits SEFCO executives.

Schylor E. McCartney, a retired northern Indiana farmer and grocery store owner, was one of the creditors who said they did not want to vote for the plan.

"I didn't think I'd live to be 74 years old and see the United States of America allow blackmail. And that's what it is," McCartney explained at a creditors meeting earlier at Plymouth.

Creditors, like McCartney who oppose the plan, want SEFCO officials to be punished for any possible wrong doing.

"Everyone's trying to dump their responsibility," McCartney said. "I think there was a lot of people enjoying life, having a helluva good time at our expense and I don't like it one bit."

The Indianapolis Star reported Sunday that many of the transactions creditors questioned were loans to "insiders" of the company, bookkeeping procedures and oral explainations that the company was sound, withdrawals by "insiders" and an apparent misapplication of bank assets.

SEFCO was formed in 1923 and became Indiana's first bank holding company 20 years later in 1943 when it bought the stock of Farmers State Bank of LaPaz. - Logansport Pharos-Tribune

1984 - Jul 27 - 60 creditors refuse to sign bank release

Creditors refuse to sign

By MATT GALBRAITH Tribune Staff writer

PLYMOUTH - Attorneys said they are not discouraged that 60 to 65 creditors with claims of nearly $3 million have refused to release the former management of bankrupt State Exchange Finance Co. from the ehreat of liability-related lawsuits.

Thursday was the deadline for creditors to sign the releases.

"I am immensely gratified with $23 1/2 million in releases That's a lot," said Randy Wilson, counsel for State Exchange Bank, which Shared the same management as SEFCO and is attempting to merge with SEFCO-owned Farmers State Bank of LaPaz.

"I think it's a demonstration that a vast number of dollars and people want to see (SEFCO's reorganization) work," Wilson said when contacted In Indianapolis.

Final figures $23.8 million In releases and $2.8 million In refusals were announced by SEFCO attorney Thomas F. Lewis Jr., who said he is quite comfortable" with the results.

"The amount of refusals represents potential litigation. That is crucial because final approval of SEFCOs reorganization and of the hank merger to create NorCen Bank must come from the Federal Deposit Insurance Corp., which wants assurances of a viable bank.

Without FDIC approval State Exchange Bank is likely to close.

The FDIC has not Indicated a preferred limit on the dollar amount of refusals, according to attorneys. who have mentioned a probable celling of about $3 million.

Approval also must come from the bank officers and directors who have offered some $4.5 million In stock and cash for the LaPaz bank.

Sixty-one creditors, who contend that SEFCO purposely was sacrificed and the reorganization designed to protect former officers, have signed an agreement regarding a passible lawsuit, according to sources close to this group.

Lately they have charged that Insiders were withdrawing, money from SEFCO accounts while at the same time encouraging customer note buying as it became clear the company was nearing Insolvency. They also claim several Infractions of banking rules and laws were committed

They are believed to be responsible for nearly all the refusals.

The agreement reportedly states all discontented creditors will pursue a suit or deckle not to, and at least three attorneys have been Interviewed about representing them.

By not signing the releases, those creditors cannot receive any part of a $2.1 million "release fund" It is estimated their returns on Investments will be decreased 7 percent

Creditors who signed the releases have been told by SEFCO they will receive an 86 percent return in the reorganization. About 40 percent Is to be paid this year.

Earlier this month more than 90 percent of creditors approved the planned reorganization.

SEFCO filed Chapter 11 bankruptcy documents Dec. 30, 1982. - South Bend Tribune

1894 - Aug 2 - Directors accept SEFCO bailout

By MATT GALBRAITH Trlbune Staff writer

CULVER State Exchange Bank directors on Wednesday formally approved the bank's $4.5 million bailout plan for State Exchange Finance Co., its former sister Institution.

The vote of directors, reportedly unanimous, came a week after all but 65 of the nearly 800 creditors of SEFCO agreed to release both Institutions from further liability from SEFCOs bankruptcy.

A. Lee Campbell, chief executive officer of the bank, said In a prepared statement that the board was extremely pleased" with the response from creditors, who also overwhelmingly approved SEFCO's plan of reorganization In early July.

The plan also was approved by U.S. District Court

William Laramore, a director, said although the 65 non-releasing creditors represent about $2.8 million in claims and potential litigation, the board felt it should proceed with Its help In liquidating SEFCO and beginning payments to creditors.

"Were going to do our part," said Laramore.

A dozen or more present and past directors and officers are expected to put up the $4.5 million for stock of SEFCO-owned Farmers State Bank of LaPaz, which will be merged with the Culver bank upon the approvals of the Federal Deposit Insurance Corp. and the Federal Reserve Board of Governors.

The stock and cash then will be distributed to creditors as part of the reorganization plan, which is estimated to bring a return on investments of about 86 percent.

Laramore said plans still are being formulated regarding who will participate from the bank, the amount of Individual contributions and in what form contributions will be. - South Bend Tribune

1894 - Aug 8 - Ex-executive of SEFCO sues

PLYMOUTH - A former official of the State Exchange Finance Co. and the State Exchange Insurance Agency filed suit Monday In Marshall Circuit Court against the State Exchange Bank, charging, that he had been wrongfully discharged.

The suit was filed by Robert L Cultice Sr, who says in the suit that he was a vice president and manager of the finance company and the Insurance agency until Aug. 4, 1982, when his employment was wrongfully terminated by Fred Adams and John Deery. He bad been employed by the two firms since I956.

In the suit, Cultice says that damage to him by the wrongful termination of his job was $156,000, bat the suit asks for both compensatory and punitive damages and does not request a specific amount.

The suit also asks for a jury trial. - South Bend Tribune

1984 - August 15 - Culver Bank Still Seeking Merger

Culver , Ind. (UPI) - The State Exchange Bank Co. (SEFCO) will continue to seek a merger with Farmers State Bank of LaPaz, despite a setback by the federal government, officials said Tuesday.

Last week the Federal Deposit Insurance Corp. denied the original request to merge the two banks.

SEFCO said the merger is crucial to the reorganization of a bankrupt finance company which owned the Farmers Bank and was the sister company of the Exchange Bank located in this northern Indiana community.

The company is trying to recoup an estimated $26 million claimed by 791 unsecured creditors.

But the FDIC said the proposed merger was not promising. In a statement, they said the "proposed transaction would result in the formation of a bank with a very large volume of unsatisfactory assets uncertain earning prospects, and a very heavy volume of liablities."

SEFCO president A. Lee Campbell said in a written statement that "the FDIC has expressed a willingness to reconsider the merger application."

An attorney representing unsecured SEFCO creditors, William Thorne of Elkhart. said that first-time denial by the FDIC is not unusual. - Wednesday, August 15, 1984 Logansport Pharos-Tribune

~ ~ Apr-Jun 1984 ~ ~ 1984 ~ ~ Oct-Dec 1984

SEFCO ~~ 1983 ~~ 1984~~ 1985 ~ ~ 1986